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A large number of people, including some libertarians, dislike the concept of homeowners’ associations (HOAs). HOAs are private agencies that administer new housing developments, requiring a monthly fee to maintain common areas and regulating everything from grass height to house colors to where you can park your car — and their rules are enforceable by contract law. In the eyes of some, they have replaced government as the nanny-like overseer of residential life.

Contrary to popular opinion, HOAs are not anything at all like government. They are not, as one person described them to this writer, “just another layer of regulation.” HOAs are private institutions that play an important role in the housing market, as well as in a free society.

According to the Community Association Institute (CAI), four out of five new homes built in the United States since the late 1990s are part of an HOA. CAI spokesman Frank Rathbun told cnn.com May 18, 2004, that most homeowners are happy with their HOAs because

[HOAs] give owners access to amenities they may not be able to afford on their own — such as swimming pools and private security — and they help protect property values.

Yet their critics abound. When cnn.com polled readers for their views on HOAs, they found that “there are plenty” of people who “argue that these bodies have too much power and not enough oversight.” “Associations have gone from having covenants with just a few simple rules to Big Brother-type of organizations where [residents] cannot have the freedom to do what they want to a home that they, not the association, are paying for,” one reader responded. Those are strong words. But are such criticisms warranted?

Just about everyone who buys a home is hoping to get more than just a roof over his head: he also sees his property as an investment and hopes that as the years go by his equity will grow. In some areas, northern Virginia, for example, homeowners have seen their equity grow by the tens of thousands of dollars in just a few short months. This is no small event. These homeowners expect that when it comes time to sell, they will experience massive windfalls, which will provide a substantial down payment on a future home. Many people talk as if their equity were more important than their 401(k) plans.

HOAs, by managing owners’ property, provide protection for this property value. If a homeowner cannot allow his grass to exceed a certain height, or leave an old car in his yard, or paint his house some outrageous color, or engage in some other behavior with unsightly results, then his neighbors need not fear the impact that such behavior will have on their house prices when they decide to sell. For years local governments have regulated neighborhoods in much the same way, through “code enforcement,” playing busybody and bully to keep up “community standards.” Strangely, this has met over the years with little complaint from homeowners — in fact, they have been a major force behind the passage of such “ordinances”. . . to protect their property values! “If you don’t like it, you can move,” is a popular refrain in defense of government controls.

At the very least, does not the same apply to HOAs?HOAs versus government

Still, very important differences exist between HOAs and city and county governments that must be understood. An HOA is a private institution, existing solely at the pleasure of those who voluntarily contribute to its existence. Buying a home within an HOA sends a clear signal to the marketplace that the buyer is willing to surrender a certain amount of control over his home’s aesthetics in exchange for certain amenities and, most important, a safeguard over his equity. And not everyone is required to belong to an HOA; there are still plenty of houses for sale that are outside their purview.

When a developer decides to erect homes, he and his associates are the owners of that property. Upon completion of the housing development they then pass ownership to individual home-buyers, yes, but with the contractual understanding that the homes will fall under the control of an HOA. Homebuyers signify that they understand and agree to these terms when they sign on the dotted line. A simple comparison can be made to a shopping mall. A developer builds the mall and sells or rents space to retailers, who agree to abide by the rules of the mall’s managing agent. Those who are not happy with the terms offered are free to buy a piece of ground and erect their own stores, just as an individual can buy property and build his own home.

Government is the organized, collective use of force, born of a desire of individuals living within a specific geographic area to unite for the purpose of defending their individual rights, i.e., protecting their lives, liberty, and property, and enforcing their contracts. Governments are formed by people who wish to have recourse to the law should another person or group of persons initiate violence against them or attempt to defraud them in some way. It is the job of government to protect people’s rights — even the rights of an HOA. City or county ordinances that dictate certain conditions to homeowners are not consistent with government’s legitimate purposes. They turn government from a protector of rights into a violator of rights; they give government arbitrary authority over another’s use and enjoyment of his own property, without his consent.

HOAs are a private, not a governmental institution. House prices can be affected by any number of factors. If people have a right to their property value enforceable through government, then a homeowner who sells his house for less than his neighbor, and thus “drives down” his neighbor’s house value, is violating his neighbor’s rights, i.e., simple competition is equated with an act of violence in the eyes of the law. No one, however, has the right for an agency to protect his home equity. This is a private matter to be dealt with through contractual agreement, which is precisely why HOAs are so popular — especially in regions where housing prices are rising the most rapidly.

Entering into a contractual arrangement with other homeowners to abide by certain guidelines to protect home values is completely separate from government — until such time as one or more parties believe that a breach of contract has taken place. And this, ultimately, describes and defines the difference between an HOA and a government: if an HOA claims that a member has violated its covenant, it does not send its HOA police with an order from its HOA court to demand compliance. It, like a private citizen, must seek recourse from the law.HOAs and freedom

Another attack on HOAs is that those who avail themselves of HOA benefits are exchanging freedom — the freedom to paint their house pink, if they wish — for protection and invoke Ben Franklin’s warning that those willing to sacrifice freedom for security deserve neither. The trouble is, no one who joins an HOA is surrendering any freedom at all. John Holt, writing in the early 1970s, put it brilliantly:

In a voluntary community there is no contradiction at all between freedom and rules. If you come of your own free will, and truly have the option to stay or go, then the community has a right to say to you, “If you want to stay here these are the things you have to do, and if you don’t want to do them you can leave.”

This relationship cannot legitimately exist between citizen and government because government exists to protect rights, not enforce rules. Rules come about through private accord.

Some complaints against HOAs do seem to be valid. For instance, some respondents to the CNN poll claimed that they were not fully informed of the implications and requirements of HOA membership until the final days of closing on their home. Obviously this would be very frustrating to a homebuyer, but such “fine print” complaints are not exactly unique to HOAs.

HOAs are a market response to people’s desire to protect their home’s value. They are voluntary contracts, and deserve to be protected by law. They are also an example of how private alternatives can easily replace government edicts. As such, they stand as an excellent example of free exchange and free will — highly appropriate in a free society

This article was originally published in the November 2004 edition of Freedom Daily.

Reading List

Prepared by Richard M. Ebeling

Austrian economics is a distinctive approach to the discipline of economics that analyzes market forces without ever losing sight of the logic of individual human action. Two of the major Austrian economists in the 20th century have been Friedrich A. Hayek, who won the Nobel Prize in Economics, and Ludwig von Mises. Posted below is an Austrian Economics reading list prepared by Richard M. Ebeling, economics professor at Northwood University in Midland and former president of the Foundation for Economic Education and vice president of academic affairs at FFF.